Pension funds and other institutional investors have been more active through the recent period of volatility and uncertainty than they were in 2008.
That's partly explained by an environment that's less severe than the global financial crisis three years ago. But experts say investors learned from 2008 and have become better equipped to actively invest through periods of market distress.
“People are not "deer-in-the-headlights' like they were in 2008,” said Mark Keleher, CEO of both Mellon Transition Management and BNY Mellon Beta Management, San Francisco. “Although we're certainly not in a great economic world right now ... people are taking a much more measured approach.”
Investors on both sides of the Atlantic postponed some typical investment decisions in August, especially decisions on rebalancing, according to transition managers.
“Every year at this time we have a rush of transition events as asset owners are rebalancing their portfolios getting ready for the next year,” but not this year, said Michael Gardner, managing director, global head of strategic implementation and regional head of transition management for EMEA at J.P. Morgan Worldwide Securities Services, London. Activity was brisk in 2011 until about August, when things stopped, Mr. Gardner said.
“We definitely saw (pension funds delaying rebalancing) in August, where several plans pulled back from executing some decisions,” Mellon's Mr. Keleher said. But as of early October, “we're seeing investors returning to transitioning assets.”
Search and hire activity has not slowed down. Tracker Hiring Analytics data show publicly known search and hire activity as being roughly on par with historical averages, according to data provided by Eager, Davis & Holmes LLC, Louisville, Ky.
“Institutional hiring activity is driven by long-term strategy. Hiring activity levels in the past haven't responded to market events month to month or even quarter to quarter; it takes time,” David Holmes, partner, said in an e-mail.
Plan funding slumped to record lows in August and September, as equity routs and ever-climbing government bond prices caused assets to fall and liabilities to rise. The overall deficit of S&P 1500 corporate defined benefit pension plans in the U.S. grew to a record $512 billion as of Sept. 30, up from $507 billion a month prior, according to Mercer LLC. September's record high was more than double the $231 billion deficit as of June 30.
And in the U.K., the aggregate deficit of about 6,500 DB plans shot up 67% in the month of September to �196.4 billion ($306.9 billion), according to the Pension Protection Fund, the U.K.'s pension bailout fund. September's deficit neared March 2009's high of �208.6 billion.
But consultants say that investment opportunities can be created by market sell-offs, and that pension funds need to make their assets work harder because of shorter time horizons and a greater proportion of assets dedicated to matching liabilities.
“We're telling clients to accept a continued high level of uncertainty, so be nimble, be flexible. We're not in normal times,” said Tapan Datta, London-based principal, global asset allocation, at Aon Hewitt. Mr. Datta said Aon Hewitt has urged clients for years to stay more nimble, but that the global financial crisis and the recent period of volatility have probably driven the message home.